In the schedule below, describe the situation at the price of$10. What will occu
ID: 1100633 • Letter: I
Question
In the schedule below, describe the situation at the price of$10. What will occur? Describe the situation at a price of $2 whatwill occur.
Suppose the government imposed a minimum price of $7 in theschedule, what would occur? illustrate.
Indicate what the price would have to be to represent an effectiveprice ceiling. Point out the surplus or shortage that results.Illustrate a price floor and provide an example of price floor.
Price QuantityDD Quantity SS
$1 500 100
$2 400 120
$3 350 150
$4 320 200
$5 300 300
$6 275 410
$7 260 500
$8 230 650
$9 200 800
$10 150 975
Explanation / Answer
At $6, Quantity demanded (275) < Quantity supplied (410), hence there will be an excess supply in the market leading to a decrease in price.
At $2, Quantity demanded (400) > Quantity supplied (120), hence there will be an excess demand in the market leading to an increase in price.
At $7, Quantity demanded (260) < Quantity supplied (500), hence there will be an excess supply in the market leading to a decrease in price. But as the minimum price is fixed at $7, there will be an excess supply of 240 units.
At $3, Quantity demanded (350) > Quantity supplied (150), hence there will be an excess demand in the market leading to an increase in price. But as the upper price is fixed at $3, there will be an excess demand of 200 units.
Example of price ceiling: Rent controls in New York area
Example of price floor: Minimum wages